TDS reports strong third quarter 2018 results

Transcription

1 As previously announced, TDS will hold a teleconference November 2, 2018, at 9:30 a.m. CDT. Listen to the call live via the Events & Presentations page of investors.tdsinc.com. FOR IMMEDIATE RELEASE TDS reports strong third quarter 2018 results U.S. Cellular raises profitability guidance CHICAGO, (November 2, 2018) Telephone and Data Systems, Inc. (NYSE:TDS) reported total operating revenues of $1,297 million for the third quarter of 2018, versus $1,251 million for the same period one year ago. Net income available to TDS common shareholders and related diluted earnings per share were $46 million and $0.41, respectively, for the third quarter of Excluding a $262 million ($190 million, net of tax and noncontrolling interests impacts) non-cash charge related to goodwill impairment recorded during the quarter ended 2017, net income available to TDS common shareholders and related diluted earnings per share were $9 million and $0.08, respectively. Including the goodwill impairment charge recorded during the quarter ended September 30, 2017, TDS recorded a net loss available to TDS common shareholders and related diluted loss per share of $181 million and $1.64, respectively. We are pleased with the TDS Family of Companies results this quarter, said LeRoy T. Carlson, Jr., TDS President and CEO. U.S. Cellular increased revenues and profitability while continuing to make enhancements to its high-performing network. TDS Telecom grew total operating revenues through strong increases in broadband connections. Due to the continued success of the Total Plans, U.S. Cellular added postpaid handset customers in the quarter. Increased inbound roaming, higher device sales and increased postpaid average revenue per user (ARPU) drove revenue growth. During the quarter, more and more customers continued to choose unlimited plans, contributing to increased average revenue per user (ARPU). Adjusted EBITDA increased 19% in the quarter, compared to a year ago, and U.S. Cellular raised its profitability guidance for the year. U.S. Cellular has enhanced its network with further commercial rollouts of VoLTE and it plans to deploy this technology in additional markets in At TDS Telecom, customer demand for faster broadband speeds and video connections generated higher wireline residential revenue per connection. The Wireline segment continued to see growth in revenues from fiber investments and through Federal A-CAM support. Cable operations produced another outstanding quarter, generating higher revenues through a continued increase in broadband connections - achieving the tenth consecutive quarter of double-digit cable broadband growth. TDS Telecom continues to advocate for full funding of the A-CAM program which will further close the digital divide. 1

2 2018 Estimated Results TDS current estimates of full-year 2018 results for U.S. Cellular, TDS Telecom, and TDS are shown below. Such estimates represent management s view as of November 2, Such forward-looking statements should not be assumed to be current as of any future date. TDS undertakes no duty to update such information, whether as a result of new information, future events, or otherwise. There can be no assurance that final results will not differ materially from such estimated results Estimated Results U.S. Cellular TDS Telecom (1) TDS (1)(2) Current (3) Previous Current (3) Previous Current (3) Previous Total operating revenues $3,950-$4,000 $3,925-$4,025 $900-$950 Unchanged $5,080-$5,180 $5,055-$5,205 Adjusted OIBDA (4)(5) $760-$810 $700-$800 $290-$320 Unchanged $1,045-$1,125 $985-$1,115 Adjusted EBITDA (4) $925-$1,000 $850-$950 $300-$330 Unchanged $1,220-$1,325 $1,145-$1,275 Capital expenditures $500 $500-$550 $250 $270 $770 $790-$840 The following tables provide reconciliations of Net income to Adjusted OIBDA and Adjusted EBITDA for 2018 estimated results, actual results for the nine months ended 2018, and actual results for the year ended December 31, In providing 2018 estimated results, TDS has not completed the below reconciliation to Net income because it does not provide guidance for income taxes. Although potentially significant, TDS believes that the impact of income taxes cannot be reasonably predicted; therefore, TDS is unable to provide such guidance Estimated Results U.S. Cellular (3) TDS Telecom (1)(3) TDS (1)(2)(3) Net income (GAAP) N/A N/A N/A Add back: Income tax expense (benefit) N/A N/A N/A Income before income taxes (GAAP) $175-$250 $80-$110 $155-$260 Add back: Interest expense Depreciation, amortization and accretion expense EBITDA (Non-GAAP) (4) $935-$1,010 $300-$330 $1,230-$1,335 Add back or deduct: (Gain) loss on asset disposals, net (Gain) loss on license sales and exchanges, net (20 ) (20) Adjusted EBITDA (Non-GAAP) (4) $925-$1,000 $300-$330 $1,220-$1,325 Deduct: Equity in earnings of unconsolidated entities Interest and dividend income Other, net (6) 5 5 Adjusted OIBDA (Non-GAAP) (4)(5) $760-$810 $290-$320 $1,045-$1,125 2

3 U.S. Cellular Nine Months Ended 2018 (3) Actual Results TDS Telecom (1) TDS (1)(2) U.S. Cellular Year Ended December 31, 2017 TDS (1)(2) (1) Telecom TDS Net income (GAAP) $ 143 $ 73 $ 155 $ 15 $ 138 $ 157 Add back or deduct: Income tax expense (benefit) (287) (13) (279) Income (loss) before income taxes (GAAP) $ 198 $ 80 $ 203 $ (272) $ 125 $ (122) Add back: Interest expense 87 (1 ) Depreciation, amortization and accretion expense EBITDA (Non-GAAP) (4) $ 763 $ 238 $ 994 $ 456 $ 319 $ 892 Add back or deduct: Loss on impairment of goodwill (Gain) loss on asset disposals, net 5 (2 ) (Gain) loss on sale of business and other exit costs, net (1) (1) (Gain) loss on license sales and exchanges, net (18) (18) (22) (22) Adjusted EBITDA (Non-GAAP) (4) $ 750 $ 236 $ 979 $ 820 $ 323 $ 1,152 Deduct: Equity in earnings of unconsolidated entities Interest and dividend income Other, net (6) Adjusted OIBDA (Non-GAAP) (4)(5) $ 620 $ 229 $ 839 $ 675 $ 314 $ 996 Note: Totals may not foot due to rounding differences. (1) TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments. Effective January 1, 2018, HMS is no longer reported under TDS Telecom. Prior periods have been recast to conform to the revised presentation. (2) The TDS column includes U.S. Cellular, TDS Telecom and also the impacts of consolidating eliminations, corporate operations and nonreportable segments (including HMS as indicated in Note (1) above). (3) As of January 1, 2018, TDS adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported, except as specifically stated. (4) EBITDA, Adjusted EBITDA and Adjusted OIBDA are defined as net income adjusted for the items set forth in the reconciliation above. EBITDA, Adjusted EBITDA and Adjusted OIBDA are not measures of financial performance under Generally Accepted Accounting Principles in the United States (GAAP) and should not be considered as alternatives to Net income or Cash flows from operating activities, as indicators of cash flows or as measures of liquidity. TDS does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future. Management uses Adjusted EBITDA and Adjusted OIBDA as measurements of profitability, and therefore reconciliations to Net income are deemed appropriate. Management believes Adjusted EBITDA and Adjusted OIBDA are useful measures of TDS operating results before significant recurring non-cash charges, gains and losses, and other items as presented above as they provide additional relevant and useful information to investors and other users of TDS financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management s evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, and gains and losses, while Adjusted OIBDA reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The table above reconciles EBITDA, Adjusted EBITDA and Adjusted OIBDA to the corresponding GAAP measure, Net income or Income (loss) before income taxes. (5) Additional information and reconciliations related to Non-GAAP financial measures for 2018, can be found on TDS' website at investors.tdsinc.com. (6) ASU , regarding net periodic pension cost and net periodic postretirement benefit cost was adopted as of January 1, 2018, and applied retrospectively. All prior period numbers have been recast to conform to this standard. 3

4 Conference Call Information TDS will hold a conference call on November 2, 2018 at 9:30 a.m. Central Time. Access the live call on the Events & Presentations page of investors.tdsinc.com or at Access the call by phone at (US/Canada), conference ID: Before the call, certain financial and statistical information to be discussed during the call will be posted to investors.tdsinc.com. The call will be archived on the Events & Presentations page of investors.tdsinc.com. About TDS Telephone and Data Systems, Inc. (TDS), a Fortune 1000 company, provides wireless; cable and wireline broadband, TV and voice; and hosted and managed services to approximately 6 million connections nationwide through its businesses, U.S. Cellular, TDS Telecom, BendBroadband and OneNeck IT Solutions. Founded in 1969 and headquartered in Chicago, TDS employed 9,600 people as of Visit investors.tdsinc.com for comprehensive financial information, including earnings releases, quarterly and annual filings, shareholder information and more. Contacts Jane W. McCahon, Senior Vice President - Corporate Relations and Corporate Secretary jane.mccahon@tdsinc.com Julie D. Mathews, IRC, Director - Investor Relations julie.mathews@tdsinc.com Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company s plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: intense competition; the ability to execute TDS business strategy; uncertainties in TDS future cash flows and liquidity and access to the capital markets; the ability to make payments on TDS and U.S. Cellular indebtedness or comply with the terms of debt covenants; impacts of any pending acquisitions/divestitures/exchanges of properties and/or licenses, including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; the ability of the company to successfully manage and grow its markets; the access to and pricing of unbundled network elements; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings of TDS and U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; pending and future litigation; changes in income tax rates, laws, regulations or rulings; changes in customer growth rates, average monthly revenue per user, churn rates, roaming revenue and terms, the availability of wireless devices, or the mix of services and products offered by U.S. Cellular and TDS Telecom. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K Current Report used by TDS to furnish this press release to the Securities and Exchange Commission, which are incorporated by reference herein. For more information about TDS and its subsidiaries, visit: TDS: U.S. Cellular: TDS Telecom: OneNeck IT Solutions: 4

5 United States Cellular Corporation Summary Operating Data (Unaudited) As of or for the Quarter Ended 9/30/2018 (1) 6/30/2018 (1) 3/31/2018 (1) 12/31/2017 9/30/2017 Retail Connections Postpaid Total at end of period 4,466,000 4,468,000 4,481,000 4,518,000 4,513,000 Gross additions 172, , , , ,000 Feature phones 3,000 5,000 5,000 5,000 7,000 Smartphones 130, ,000 91, , ,000 Connected devices 39,000 35,000 33,000 44,000 52,000 Net additions (losses) (1,000 ) (13,000 ) (37,000) 5,000 35,000 Feature phones (14,000 ) (12,000 ) (15,000) (15,000) (15,000) Smartphones 29,000 17,000 (1,000) 33,000 44,000 Connected devices (16,000 ) (18,000 ) (21,000) (13,000) 6,000 ARPU (2) $ $ $ $ $ ABPU (Non-GAAP) (3) $ $ $ $ $ ARPA (4) $ $ $ $ $ ABPA (Non-GAAP) (5) $ $ $ $ $ Churn rate (6) 1.29 % 1.19 % 1.23% 1.27% 1.16% Prepaid Handsets 1.02 % 0.92 % 0.97% 1.00% 0.96% Connected devices 3.04 % 2.85 % 2.79 % 2.84 % 2.33 % Total at end of period 528, , , , ,000 Gross additions 80,000 78,000 88,000 83, ,000 Net additions 1,000 2,000 6,000 4,000 31,000 ARPU (2) $ $ $ $ $ Churn rate (6) 4.98 % 4.83 % 5.27 % 5.09 % 4.75 % Total connections at end of period (7) 5,050,000 5,051,000 5,063,000 5,096,000 5,089,000 Market penetration at end of period Consolidated operating population 31,469,000 31,469,000 31,469,000 31,834,000 31,834,000 Consolidated operating penetration (8) 16 % 16 % 16 % 16 % 16 % Capital expenditures (millions) $ 118 $ 86 $ 70 $ 213 $ 112 Total cell sites in service 6,506 6,478 6,473 6,460 6,436 Owned towers 4,119 4,105 4,099 4,080 4,051 5

6 (1) As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported. (2) Average Revenue Per User (ARPU) - metric is calculated by dividing a revenue base by an average number of connections and by the number of months in the period. These revenue bases and connection populations are shown below: Postpaid ARPU consists of total postpaid service revenues and postpaid connections. Prepaid ARPU consists of total prepaid service revenues and prepaid connections. (3) Average Billings Per User (ABPU) - non-gaap metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period. Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric. (4) Average Revenue Per Account (ARPA) - metric is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period. (5) Average Billings Per Account (ABPA) - non-gaap metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period. Refer to the end of this release for a reconciliation of this metric to its most comparable GAAP metric. (6) Churn rate represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period. (7) Includes reseller and other connections. (8) Market penetration is calculated by dividing the number of wireless connections at the end of the period by the total population of consolidated operating markets as estimated by Nielsen. 6

7 TDS Telecom Summary Operating Data (Unaudited) As of or for the Quarter Ended 9/30/2018 6/30/2018 3/31/ /31/2017 9/30/2017 TDS Telecom Wireline Residential connections Voice (1) 278, , , , ,200 Broadband (2) 237, , , , ,900 Video (3) 53,100 51,500 50,300 48,600 47,200 Wireline residential connections 568, , , , ,300 Total residential revenue per connection (4) $ $ $ $ $ Commercial connections Voice (1) 134, , , , ,900 Broadband (2) 20,700 20,600 20,600 20,600 20,900 managedip (5) 138, , , , ,600 Video (3) Wireline commercial connections 293, , , , ,300 Total Wireline connections 861, , , , ,700 Cable Cable Connections Broadband (6) 163, , , , ,800 Video (7) 102, , , ,800 97,900 Voice (8) 63,600 62,000 60,600 59,700 58,500 managedip (5) Cable connections 330, , , , ,600 Note: Totals may not foot due to rounding differences. (1) The individual circuits connecting a customer to Wireline s central office facilities. (2) The number of Wireline customers provided high-capacity data circuits via various technologies, including DSL and dedicated internet circuit technologies. (3) The number of Wireline customers provided video services. (4) Total residential revenue per connection is calculated by dividing total Wireline residential revenue by the average number of Wireline residential connections and by the number of months in the period. (5) The number of telephone handsets, data lines and IP trunks providing communications using IP networking technology. (6) Billable number of lines into a building for high-speed data services. (7) Generally, a home or business receiving video programming counts as one video connection. In counting bulk residential or commercial connections, such as an apartment building or hotel, connections are counted based on the number of units/rooms within the building receiving service. (8) Billable number of lines into a building for voice services. TDS Telecom Capital Expenditures (Unaudited) Quarter Ended 9/30/2018 6/30/2018 3/31/ /31/2017 9/30/2017 Wireline $ 41 $ 33 $ 29 $ 55 $ 41 Cable Total TDS Telecom (1) $ 54 $ 46 $ 40 $ 74 $ 56 Note: Totals may not foot due to rounding differences. (1) TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments. Effective January 1, 2018, HMS is no longer reported under TDS Telecom. Prior periods have been recast to conform to the revised presentation. 7

8 (Dollars and shares in millions, except per share amounts) Operating revenues Telephone and Data Systems, Inc. Consolidated Statement of Operations Highlights (Unaudited) Three Months Ended 2018 (1) vs Nine Months Ended 2018 (1) vs U.S. Cellular $ 1,001 $ % $ 2,916 $ 2,862 2 % TDS Telecom (2) % % All Other (2)(3) % (10)% Operating expenses U.S. Cellular 1,297 1,251 4 % 3,777 3,736 1 % Expenses excluding depreciation, amortization and accretion % 2,296 2,339 (2)% Depreciation, amortization and accretion % % Loss on impairment of goodwill (4) 370 N/M 370 N/M (Gain) loss on asset disposals, net 3 5 (36)% 5 14 (61)% (Gain) loss on sale of business and other exit costs, net (1 ) N/M (1 ) N/M (Gain) loss on license sales and exchanges, net N/M (18) (19 ) 6 % 967 1,323 (27)% 2,761 3,163 (13)% TDS Telecom (2) Expenses excluding depreciation, amortization and accretion (5) % % Depreciation, amortization and accretion % % (Gain) loss on asset disposals, net (3 ) 1 N/M (2 ) 2 N/M All Other (2)(3) % % Expenses excluding depreciation and amortization (5) % (2 )% Depreciation and amortization 7 7 (6 )% (5 )% Loss on impairment of goodwill (4) (108 ) N/M (108 ) N/M 73 (42 ) N/M N/M Total operating expenses 1,246 1,484 (16 )% 3,585 3,861 (7 )% Operating income (loss) U.S. Cellular 34 (360) N/M 155 (301) N/M TDS Telecom (2)(5) % (20 )% All Other (2)(3)(5) (11 ) 100 N/M (34 ) 88 N/M 51 (233 ) N/M 192 (125 ) N/M Investment and other income (expense) Equity in earnings of unconsolidated entities % % Interest and dividend income % % Interest expense (43 ) (43 ) (129 ) (128 ) (1 )% Other, net (5) 2 1 N/M 1 3 (32 )% Total investment and other income (expense) (5) 7 (3 ) N/M 11 (12 ) N/M Income (loss) before income taxes 58 (236) N/M 203 (137) N/M Income tax expense (benefit) 5 (5) N/M % Net income (loss) 53 (231) N/M 155 (176) N/M Less: Net income (loss) attributable to noncontrolling interests, net of tax 7 (50) N/M 36 (42) N/M Net income (loss) available to TDS common shareholders $ 46 $ (181 ) N/M $ 119 $ (134 ) N/M Basic weighted average shares outstanding % % Basic earnings (loss) per share available to TDS common shareholders $ 0.41 $ (1.64 ) N/M $ 1.06 $ (1.21 ) N/M Diluted weighted average shares outstanding % % Diluted earnings (loss) per share available to TDS common shareholders $ 0.41 $ (1.64) N/M $ 1.04 $ (1.21) N/M N/M - Percentage change not meaningful. Note: Totals may not foot due to rounding differences. End Notes (1) (2) (3) (4) (5) Explained on page 11 of the release. 8

9 Telephone and Data Systems, Inc. Consolidated Statement of Cash Flows (Unaudited) Nine Months Ended 2018 (1) 2017 Cash flows from operating activities Net income (loss) $ 155 $ (176) Add (deduct) adjustments to reconcile net income (loss) to net cash flows from operating activities Depreciation, amortization and accretion Bad debts expense Stock-based compensation expense Deferred income taxes, net 31 (23) Equity in earnings of unconsolidated entities (121) (101) Distributions from unconsolidated entities Loss on impairment of goodwill 262 (Gain) loss on asset disposals, net 3 16 (Gain) loss on sale of business and other exit costs, net (1) (Gain) loss on license sales and exchanges, net (18) (19) Noncash interest 3 2 Changes in assets and liabilities from operations Accounts receivable (5) (6) Equipment installment plans receivable (88) (164) Inventory Accounts payable 13 (59) Customer deposits and deferred revenues (7) (16) Accrued taxes (3) 41 Accrued interest Other assets and liabilities (36) (9) Net cash provided by operating activities Cash flows from investing activities Cash paid for additions to property, plant and equipment (447) (398) Cash paid for acquisitions and licenses (10) (200) Cash received for investments 100 Cash paid for investments (100) Cash received from divestitures and exchanges Other investing activities 4 1 Net cash used in investing activities (325) (678) Cash flows from financing activities Repayment of long-term debt (15) (9) TDS Common Shares reissued for benefit plans, net of tax payments 27 (1) U.S. Cellular Common Shares reissued for benefit plans, net of tax payments 7 Repurchase of TDS Preferred Shares (1) Dividends paid to TDS shareholders (54) (51) Payment of debt issuance costs (2) Distributions to noncontrolling interests (5) (2) Other financing activities 5 Net cash used in financing activities (42) (59) Net increase (decrease) in cash, cash equivalents and restricted cash 445 (116 ) Cash, cash equivalents and restricted cash Beginning of period End of period $ 1,067 $ 788 End Note (1) Explained on page 11 of the release. 9

10 Current assets Telephone and Data Systems, Inc. Consolidated Balance Sheet Highlights (Unaudited) ASSETS 2018 (1) December 31, 2017 Cash and cash equivalents $ 1,062 $ 619 Short-term investments 100 Accounts receivable 1, Inventory, net Prepaid expenses Income taxes receivable 3 2 Other current assets Total current assets 2,387 1,966 Assets held for sale Licenses 2,198 2,232 Goodwill Other intangible assets, net Investments in unconsolidated entities Property, plant and equipment, net 3,229 3,424 Other assets and deferred charges Total assets $ 9,719 $ 9,295 10

11 (Dollars in millions, except per share amounts) Current liabilities Telephone and Data Systems, Inc. Consolidated Balance Sheet Highlights (Unaudited) LIABILITIES AND EQUITY 2018 (1) December 31, 2017 Current portion of long-term debt $ 20 $ 20 Accounts payable Customer deposits and deferred revenues Accrued interest Accrued taxes Accrued compensation Other current liabilities Total current liabilities Deferred liabilities and credits Deferred income tax liability, net Other deferred liabilities and credits Long-term debt, net 2,422 2,437 Noncontrolling interests with redemption features 11 1 Equity TDS shareholders' equity Series A Common and Common Shares, par value $ Capital in excess of par value 2,424 2,413 Treasury shares, at cost (563) (669) Accumulated other comprehensive loss (3) (1) Retained earnings 2,683 2,525 Total TDS shareholders' equity 4,542 4,269 Noncontrolling interests Total equity 5,250 4,892 Total liabilities and equity $ 9,719 $ 9,295 (1) As of January 1, 2018, TDS adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported, except as specifically stated. (2) TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments. Effective January 1, 2018, HMS is no longer reported under TDS Telecom. Prior periods have been recast to conform to the revised presentation. (3) Consists of TDS corporate, intercompany eliminations and all other business operations not included in the U.S. Cellular and TDS Telecom segments. (4) During the three months ended 2017, U.S. Cellular recorded a goodwill impairment of $370 million while TDS recorded a goodwill impairment of the U.S. Cellular reporting unit of $227 million. Prior to 2009, TDS accounted for U.S. Cellular's share repurchases as step acquisitions, allocating a portion of the share repurchase value to TDS' Goodwill. Further, goodwill of the U.S. Cellular reporting unit was impaired at the TDS level in 2003 but not at U.S. Cellular. Consequently, U.S. Cellular's goodwill on a stand-alone basis and any resulting impairments of goodwill does not equal the TDS consolidated goodwill related to U.S. Cellular. The TDS adjustment of $143 million is included in "All other". During the three months ended 2017, TDS also recorded a goodwill impairment of $35 million related to its HMS operations included in "All other". (5) ASU , regarding net periodic pension cost and net periodic postretirement benefit cost was adopted January 1, 2018, and applied retrospectively. All prior period numbers have been recast to conform to this standard. 11

12 Balance Sheet Highlights (Unaudited) 2018 U.S. TDS TDS Corporate Intercompany TDS Cellular Telecom & Other Eliminations Consolidated Cash and cash equivalents $ 730 $ 23 $ 309 $ $ 1,062 Affiliated cash investments 427 (427) $ 730 $ 450 $ 309 $ (427) $ 1,062 Licenses, goodwill and other intangible assets $ 2,189 $ 759 $ 19 $ $ 2,967 Investment in unconsolidated entities (7) 500 $ 2,650 $ 763 $ 61 $ (7) $ 3,467 Property, plant and equipment, net $ 2,126 $ 973 $ 130 $ $ 3,229 Long-term debt, net: Current portion $ 19 $ 1 $ $ $ 20 Non-current portion 1, ,422 $ 1,628 $ 3 $ 811 $ $ 2,442 12

13 TDS Telecom Highlights (Unaudited) Wireline Operating revenues Three Months Ended 2018 (1) vs Nine Months Ended 2018 (1) vs Residential $ 81 $ 80 1 % $ 241 $ % Commercial (8)% (7)% Wholesale % (2)% Total service revenues (1)% (2)% Equipment and product sales 15 % % Operating expenses (1)% (2)% Cost of services % % Cost of equipment and products (35)% 1 2 (33)% Selling, general and administrative expenses (2) (1)% (1)% Expenses excluding depreciation, amortization and accretion % % Depreciation, amortization and accretion (6)% (5)% (Gain) loss on asset disposals, net (4 ) N/M (3 ) 1 N/M (3 )% (1 )% Operating income (2) $ 28 $ 25 9 % $ 75 $ 81 (8 )% Cable Operating revenues Residential $ 47 $ % $ 140 $ % Commercial % % Operating expenses % % Cost of services % % Selling, general and administrative expenses % % Expenses excluding depreciation, amortization and accretion % % Depreciation, amortization and accretion % % (Gain) loss on asset disposals, net % 1 1 (9 )% % % Operating income (loss) $ $ 2 N/M $ (4 ) $ 7 N/M Total TDS Telecom operating income (2)(3) $ 28 $ 27 1 % $ 71 $ 88 (20 )% N/M - Percentage change not meaningful. Note: Totals may not foot due to rounding differences. (1) As of January 1, 2018, TDS adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported, except as specifically stated. (2) ASU , regarding net periodic pension cost and net periodic postretirement benefit cost was adopted as of January 1, 2018, and applied retrospectively. All prior period numbers have been recast to conform to this standard. (3) TDS has re-evaluated internal reporting roles with regard to its HMS business unit and, as a result, has changed its reportable segments. Effective January 1, 2018, HMS is no longer reported under TDS Telecom. Prior periods have been recast to conform to the revised presentation. 13

14 Free Cash Flow Telephone and Data Systems, Inc. Financial Measures and Reconciliations Three Months Ended Nine Months Ended Cash flows from operating activities (GAAP) $ 349 $ 263 $ 812 $ 621 Less: Cash paid for additions to property, plant and equipment Free cash flow (Non-GAAP) (1) $ 178 $ 107 $ 365 $ 223 (1) Management uses Free cash flow as a liquidity measure and it is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. Free cash flow is a non-gaap financial measure which TDS believes may be useful to investors and other users of its financial information in evaluating liquidity, specifically, the amount of net cash generated by business operations after deducting Cash paid for additions to property, plant and equipment. Net income (loss) excluding goodwill impairment charge The following non-gaap financial measures present certain information in the table below excluding the effect of the goodwill impairment charge, related tax effects and noncontrolling interests impacts. The goodwill impairment charge, which occurred in the third quarter of 2017, is being excluded in this presentation, as it is not related to the current operations of TDS. TDS believes these measures may be useful to investors and other users of its financial information when comparing the current period financial results with periods that were not impacted by such a charge. (Dollars in millions, except per share amounts) Net income (loss) available to TDS common shareholders (GAAP) Adjustments: Three Months Ended Nine Months Ended $ 46 $ (181 ) $ 119 $ (134) Loss on impairment of goodwill Tax benefit on impairment of goodwill (1) (20) (20) Net income (loss) attributable to noncontrolling interests, net of tax (52) (52) Subtotal of Non-GAAP adjustments Net income available to TDS common shareholders excluding goodwill impairment charge (Non-GAAP) $ 46 $ 9 $ 119 $ 56 Diluted earnings (loss) per share available to TDS common shareholders (GAAP) $ 0.41 $ (1.64) $ 1.04 $ (1.21) Adjustments: Adjustment to weighted average diluted shares (2) Loss in impairment of goodwill Tax benefit on impairment of goodwill (1) (0.18 ) (0.18 ) Net income (loss) attributable to noncontrolling interests, net of tax (0.46) (0.46) Diluted earnings per share available to TDS common shareholders excluding goodwill impairment charge (Non-GAAP) $ 0.41 $ 0.08 $ 1.04 $ 0.50 Diluted weighted average shares outstanding (GAAP) Adjustment to weighted average diluted shares (2) 1 1 Adjusted diluted weighted average shares (Non-GAAP) $ 114 $ 112 $ 113 $ 112 (1) Tax benefit represents the amount associated with the tax-deductible portion of the loss on goodwill impairment. (2) Adjustment to reflect the incremental shares deemed anti-dilutive for GAAP diluted earnings per share. 14

15 Postpaid ABPU and Postpaid ABPA U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect the revenue shift from Service revenues to Equipment and product sales resulting from the increased adoption of equipment installment plans. Postpaid ABPU and Postpaid ABPA, as previously defined herein, are non-gaap financial measures which U.S. Cellular believes are useful to investors and other users of its financial information in showing trends in both service and equipment and product sales revenues received from customers. For the Quarter Ended 9/30/2018 (1) 6/30/2018 (1) 3/31/2018 (1) 12/31/2017 9/30/2017 (Dollars and connection counts in millions) Calculation of Postpaid ARPU Postpaid service revenues $ 607 $ 600 $ 598 $ 598 $ 586 Average number of postpaid connections Number of months in period Postpaid ARPU (GAAP metric) $ $ $ $ $ Calculation of Postpaid ABPU Postpaid service revenues $ 607 $ 600 $ 598 $ 598 $ 586 Equipment installment plan billings Total billings to postpaid connections $ 796 $ 774 $ 770 $ 768 $ 738 Average number of postpaid connections Number of months in period Postpaid ABPU (Non-GAAP metric) $ $ $ $ $ Calculation of Postpaid ARPA Postpaid service revenues $ 607 $ 600 $ 598 $ 598 $ 586 Average number of postpaid accounts Number of months in period Postpaid ARPA (GAAP metric) $ $ $ $ $ Calculation of Postpaid ABPA Postpaid service revenues $ 607 $ 600 $ 598 $ 598 $ 586 Equipment installment plan billings Total billings to postpaid accounts $ 796 $ 774 $ 770 $ 768 $ 738 Average number of postpaid accounts Number of months in period Postpaid ABPA (Non-GAAP metric) $ $ $ $ $ Numbers may not foot due to rounding. (1) As of January 1, 2018, U.S. Cellular adopted the new revenue recognition standard, ASC 606, using a modified retrospective approach. Under this method, the new accounting standard is applied only to the most recent period presented. As a result, 2018 amounts include the impacts of ASC 606, but 2017 amounts remain as previously reported. 15